Proactive Investors - National Bank of Canada ({{TSX:NA)'s acquisition of Canadian Western Bank (TSX:CWB) for C$5 billion aims to significantly expand its scale and presence in Western Canada, despite the high premium and potential regulatory delays.
On Wednesday, Canadian Western Bank (CWB) announced that National Bank plans to acquire it in a deal valued at approximately $5 billion. a 100% premium to CWB's 20-day volume-weighted average price (VWAP).
The move is a “direct response” to rival RBC’s bid for HSBC Canada, according to analysts at Jefferies.
The transaction values CWB shares at $52.24 each, representing 1.4 times its price-to-book ratio and 14 times its forward price-to-earnings ratio based on 2025 estimates, analysts at Jefferies noted.
The deal premium is “significant,” analysts believe. “While there are significant disparities in valuation multiples, much of that dissipates with the premium required to ensure that the deal is approved. That said, it remains accretive on a P/B basis and a P/E basis, assuming full realization of the synergies.
“Strategically, we believe that this is an excellent move for National (Bank) as it increases its scale, footprint and commercial loan book,” analysts wrote.
“In addition, given the disparity in relative valuations, National Bank can bootstrap on the earnings, generating accretion (despite the significant premium).”
CWB’s board, along with its senior management and financial advisors, unanimously supports the transaction, viewing it as beneficial and fair to shareholders. All directors and executives have agreed to vote in favor of the acquisition, subject to certain conditions.
Jefferies analysts noted that the acquisition would make CWB part of Canada’s 'Big 6' banks. The new price target for CWB shares has been set at $52, reflecting the transaction's valuation metrics.
For National Bank shareholders, the acquisition of CWB is seen as a strategic move to expand its footprint and commercial loan book, especially in Western Canada where CWB has a strong presence.
The deal is expected to boost National Bank's scale and diversify its branch distribution.
Despite the hefty premium, the acquisition is projected to be accretive, enhancing National Bank’s earnings and reducing its reliance on capital markets.
Jefferies analysts believe the transaction is likely to be approved by shareholders and the Competition Bureau, despite potential delays.
“Despite our optimism on the National Bank’s outlook from the deal, with the close 18 months out, investors will have to be patient on the expected payback,” the analysts noted.
Jefferies has set a new price target of $121 for National Bank, anticipating positive long-term impacts from the acquisition.